Although St. Galler Kantonalbank (SGKB) expects interest rates to be even lower in 2025, it does not believe that the Swiss National Bank (SNB) will again charge negative interest on sight deposits held in current accounts with the bank.

However, SGKB is not ruling out the possibility of Swiss monetary policymakers reverting to negative interest rates. This was emphasized by CIO Thomas Stucki (a former asset manager at the SNB) and Dominik Schmidlin, Head of Investment Strategy and Analysis, during an event in Zurich on Thursday morning. «The inhibition threshold for this has become smaller because the negative interest rate has technically worked before,» Stucki pointed out.

More Foreign Currency Purchases Instead of Interest Rate Cuts in the Fight Against the Strong Franc?

The SNB is caught between an interest rate policy geared towards price stability and economic stimulus and an exchange rate management policy aimed at preventing an excessive appreciation of the Swiss franc. Stucki assumes that the SNB will resort to foreign currency purchases rather than interest rate cuts in the fight against an excessively strong franc.

This is why, unlike the market, SGKB predicts only two interest rate cuts: one in December of this year and another in March 2025. Assuming gradual adjustments, this would lower the SNB key interest rate to 0.5 percent.

Market Signals Multi-Year Low Interest Rate Environment

The longer-term market expectations, which can be seen from the forward rates, are also low. Market participants are currently assuming that the entire yield curve from 0 to 10 years will remain below 0.7 percent until the end of 2029. In this low interest rate environment, alternatives to safe bonds are in demand, the two investment strategists concluded.

Their focus is, almost inevitably, on equities – particularly those offering a reliable dividend. With an average dividend yield of 3 percent, Swiss equities are attractive, Stucki noted. «The effect of cumulative dividend income should not be underestimated; this is a very important argument, especially for our clients who are increasingly having their pension fund assets paid out and have corresponding investment needs.»

U.S. Equities: Highly Valued But Still Attractive

Although U.S. equities are highly valued, they remain attractive for SGKB «The economy, which is performing better than in Europe, and the deregulation announced by the future president are supporting the market,» explained Stucki. In addition, the trend towards indexed, passive investing is having a stabilizing effect on the market as a whole.

Regarding Geopolitical Risks: A Measured Perspective from SGKB
Geopolitical risks, which currently rank high on the list of concerns for many investors, are viewed with relative calm by SGKB. While these risks may trigger short-term market fluctuations, they are not considered decisive factors.

Gold as an Investment and Bitcoin as a «Speculative Asset»

The inclusion of gold and Bitcoin in the 2025 investment outlook is naturally tied to the exceptional performance of these two asset classes this year. From a risk-hedging perspective, allocating 5 to 10 percent of a portfolio to gold is deemed reasonable, partly because central bank purchases provide a solid foundation for gold prices.

In contrast, Stucki continues to view Bitcoin as a «speculative asset», that should not be part of a strategic asset allocation. The market remains relatively narrow, price volatility is too high, and Bitcoin’s correlation with the stock market is excessive—making it unsuitable as the new gold. «That said, we are currently being confronted with questions about Bitcoin at all client events, including those with pension funds,» Stucki noted.